Landlord and tenant — Service charges — Payment of a depreciation allowance — Air conditioning plant not replaced by term date — Whether tenant entitled to return of depreciation allowance fund
By two leases dated July 23 1974 and
December 29 1976 the plaintiff tenant was granted terms of premises within Bush
House, London, by the first defendant. On the expiration of the contractual
terms, the tenant remained in possession under tenancies continued pursuant to
the Landlord and Tenant Act 1954 until a new lease was granted on February 7
1994 by a successor in title, the third defendant. Under the service charge
provisions of the original leases, the tenant was obliged to pay a depreciation
allowance in respect of the cost of maintaining and replacing, inter alia,
fixtures and fittings, and in particular the air conditioning plant. Under the
leases the landlord covenanted to maintain the air conditioning plant. The sums
paid over the years by the tenant in respect of the depreciation allowance had
not been expended by the landlord on replacing the air conditioning plant by
the date when the tenancies created by the original leases determined on
February 7 1994. On the acquisition of the reversion by
claimed repayment of the fund and by a summons under RSC Ord 14A sought the
determination of certain questions.
irrelevant that the landlord did not spend the fund on replacing the air
conditioning during the currency of the tenancies; once the payments were made
they became the landlord’s absolute property. The commercial reality was that
the life of the air conditioning might not have had a life coterminous with the
leases. The cost of running the air conditioning to the landlord included its
depreciation which the tenant had agreed to indemnify. One factor against the
tenant’s contention was the absence of any machinery in the leases for the
repayment of the fund. Leave was given to amend the pleadings in relation to
the plaintiff’s claim for overpayment of the depreciation allowance fund above
the sum accumulated in 1985 for the air conditioning work.
The following case is referred to in this
report.
Ketteman v Hansel Properties Ltd [1987] AC
189; [1987] 2 WLR 312; [1988] 1 All ER 38; (1987) 85 LGR 409; [1987] 1 EGLR
237, HL
This was a hearing of a summons under RSC
Ord 14A in a claim by the tenant, the Secretary of State for the Environment,
against the defendants, Possfund (North West) Ltd, Finishservice Ltd and Kato
Kagaku Co Ltd, for repayment of moneys.
Jonathan Gaunt QC (instructed by the
Treasury Solicitor) appeared for the plaintiff; Christopher Nugee (instructed
by Linklaters & Paines) represented the third defendant; the first and
second defendants did not appear and were not represented.
Giving judgment, RIMER J said:
This is the plaintiff’s summons under RSC Ord 14A. It raises four questions.
The answers to questions 1 to 3 ultimately depend on the true construction of
the service charge provisions in two leases. Counsel are agreed that question 4
does not need to be answered.
The plaintiff is the Secretary of State
for the Environment (‘the tenant’). On July 23 1974 he took a lease from the
first defendant, Possfund (North West) Ltd, of parts of the ground and fifth to
ninth floors of the north west wing of Bush House, Aldwych, London WC2. The
term was 15 years from September 29 1973 expiring on September 29 1988. The
initial rent was £250,000 pa, subject to review. A service charge was payable
‘as additional rent’.
On December 29 1976 the tenant took a
lease from Possfund of additional premises in Bush House. The term was from
November 29 1976 and also expired on September 29 1988. The initial rent was
£13,250 pa and the lease also provided for the payment of a service charge as
additional rent. It incorporated, mutatis mutandis, the same covenants
and provisions as were contained in the 1974 lease.
Following the grants of the leases there
were two assignments of the reversion: (i) in 1987, by Possfund to
Finishservice Ltd, the second defendant; (ii) in 1989, by Finishservice to Kato
Kagaku Co Ltd, the third defendant. The summons raises issues only as between
the tenant and Kato. Mr Jonathan Gaunt QC appeared for the tenant and Mr
Christopher Nugee for Kato.
The terms granted by the leases expired
by effluxion of time on September 29 1988. However, the tenancies were ones to
which Part II of the Landlord and Tenant Act 1954 applied and they continued
under that Part until February 7 1994 when Kato granted the tenant a new lease
of the same premises.
The issue is as follows. From about 1975
to December 1993, and as part of the service charge, the tenant made quarterly
payments in advance to the landlord which were set aside in a separate fund
earmarked for the replacement of the air conditioning plant in the north west
wing of Bush House. From September 1976 to December 1993 the payments were
£8,377.12 per quarter, or £33,508.50 pa, and prior to September 1976 they were
slightly less. The precise figures are not agreed and do not matter for present
purposes. But it is, I think, at least agreed that they amounted in total to
something in excess of £600,000 and that, with accrued interest, the fund is
now worth over £1m. The moneys paid to Possfund were paid over to Finishservice
when it acquired the reversion in 1989. The moneys then and subsequently paid
to Finishservice were paid over to Kato when it acquired the reversion in 1987.
The moneys have been, and are, held in a separate client account of Kato’s
managing agents. The evidence refers to the moneys as representing a sinking
fund for the replacement of the air conditioning plant. No other tenant of Bush
House made any payments towards the fund, presumably because they did not
benefit from the system.
When the tenancies came to an end in 1994
no part of the fund had been applied in replacing the air conditioning plant,
and it has still not been replaced. The tenant’s case is that he is therefore
entitled to have the moneys repaid to him. He says that they were only paid on
account of expenditure which, if it was to be incurred at all, was to be
incurred during the currency of the tenancies, and as it was not so incurred it
follows he is entitled to be repaid. Kato’s case is that this is wrong and that
it is entitled to retain all the moneys paid and now held by it.
The resolution of this difference
requires a consideration of the service charge provisions in the 1974 lease,
which are also incorporated into the 1976 lease. By clause 3(2) the tenant
covenanted with the landlord, so far as material:
(2) To pay to the Landlord by way of
further rent a fair proportion (calculated in accordance with paragraph (f) of
this sub-clause) of the expenses and outgoings incurred or to be incurred by
the Landlord as set out in the Third Schedule hereto such further and
additional rent (hereinafter called ‘the service charge’) being subject to the
following terms and provisions:
(a) The amount of the service charge
shall be ascertained and certified by the Landlord’s accountants acting as
experts and not as arbitrators annually and so soon after the end of the
calendar or the Landlord’s financial year as may be practicable.
(b) The certificate shall contain a
summary and breakdown of the said expenses and outgoings incurred by the
Landlord during the year to which it relates and the certificate shall be
conclusive evidence of the amount of such expenses and outgoings for the purposes
thereof.
(c) The expression ‘the expenses and
outgoings incurred by the Landlord’ as hereinbefore used shall be deemed to
include not only those items actually disbursed or incurred during the year in
question but also such reasonable part of any anticipated expenditure in
respect thereof as the Landlord’s accountants may in their discretion allocate
to the year in question as being fair and reasonable in the circumstances.
(d) The Tenant shall with every quarterly
payment of rent reserved hereunder pay to the Landlord such sum in advance and
on account of the service charge and any VAT chargeable thereon as the
Landlord’s accountants shall specify at their discretion to be a fair and
reasonable interim payment.
(e) As soon as practicable after the
signature of the certificate aforesaid the Landlord shall furnish to the Tenant
an account of the service charge and any VAT chargeable thereon payable by the
Tenant for the year in question due credit being given therein for all interim
payments made by the Tenant in respect of the said year and upon the furnishing
of a copy of the certificate aforesaid and of such account showing such
adjustment as may be appropriate there shall be paid by the Tenant to the
Landlord the amount of the service charge as aforesaid or any balance found
payable or there shall be allowed by the Landlord to the Tenant as a credit
against succeeding service charge payments any amount which may have been
overpaid by the Tenant by way of interim payment as the case may require and in
the last year of the demise any balance due to the Tenant shall be paid to him
on the issue of the certificate aforesaid.
(f) The ‘fair proportion’ of the expenses
and outgoings hereinbefore referred to shall be calculated by dividing the
aggregate of the said expenses and outgoings incurred by the Landlord in the
year to which the certificate aforesaid relates by the aggregate of the
superficial floor areas of the Building (excluding nevertheless all common
portions the occupation or control of which shall be retained by the Landlord
and excluding the storeroom in the Basement of the Building so long as they are
used for storage only) the repair maintenance renewal insurance or servicing
whereof is charged in such calculation as aforesaid and then multiplying the
resultant amount by the superficial floor area of the demised premises.
(g) The Landlord shall on demand produce
to the Tenant such accounts vouchers and information as he shall reasonably
require in verification of the information contained in the certificate
aforesaid and in support of any account for service charge rendered by the
Tenant …
By clause 4(4)(a) the landlord covenanted
with the tenant:
(4) To maintain and keep in good
structural repair and decorative condition
(a) the exterior and the structure of the
Building (including the demised premises) and in particular the roofs,
foundations and structural and load-bearing walls thereof and the heating and
air conditioning plant thereof.
By clause 4(5)(e) the landlord covenanted
further:
(5) So far as practicable and subject
always as provided in Clause 7(5) thereof [which is not material] to perform
the following services:
…
(e) to maintain the main air conditioning
plant on the roof of the Building so as to provide reasonably satisfactory air
conditioning to the demised premises …
Finally, paras 1 and 2 of the third
schedule, which is headed ‘Expenses and outgoings in respect of which the
Tenant is to contribute’, refer to:
1. All costs and expenses properly
incurred by the Landlord in and about the discharge of the obligations on the
part of the Landlord set out specifically in sub-clauses (4) and (5) of Clause
4 hereof and any other cost and expense incurred by the Landlord in the
management or maintenance of the Building and of any adjoining or neighbouring
premises or land benefiting the Building (hereinafter called ‘the said
services’) including where appropriate the services hereinafter referred to
which are not exhaustive and do not constitute a warranty that the services
will be supplied or performed.
2. The cost of periodically maintaining
overhauling and where necessary replacing any and every part of the Building
and the appurtenances thereof including where necessary the provision for
future expenditure on fixtures and fittings by means of depreciation allowance.
Mr Gaunt’s argument is this. He submits,
and I agree, that the landlord’s obligations under clause 4 are obligations
which were to be performed only during the terms of the tenancies, not after
their expiry. They required it, inter alia, to maintain the air
conditioning system and to keep it in good repair, and he submits that this
must require the landlord, if necessary, to replace the system. Mr Nugee did
not dispute that, and I accept that this submission is also correct. Mr Gaunt
then refers to the tenant’s service charge covenant in clause 3(2) and to the
expenses and outgoings set out in schedule 3 to which the tenant is required to
contribute. Para 2 of the latter refers to:
The cost of … where necessary replacing
any and every part of the Building and the appurtenances thereof including …
the provision for future expenditure on fixtures and fittings by means of
depreciation allowance.
Mr Gaunt accepts that the air
conditioning plant is either a part of the building or else an appurtenance or
a fixture or fitting. He accepts also that clause 3(2) of the lease required
the tenant to make service charge payments towards the para 2 costs. He
submits, however, that the words ‘by means of depreciation allowance’ are
surplusage. He says that a depreciation allowance is strictly a proportion of a
sum spent in the past and that it cannot have been the intention that the
tenant should pay such an allowance and also contribute towards ‘the provision
for future expenditure’ on the plant. He says that the evidence shows that the
payments made by the tenant were in fact towards ‘the provision for future
expenditure on’ the plant. He relies on a landlord’s schedule dated December
1977 showing that the annual air conditioning payment of £33,508.50, which was
by then being made by the tenant, comprised: (i) £11,773.50 towards the
estimated replacement cost of £117,735 of the plant and controls, which had a
life expectancy of 10 years; and (ii) £21,735 towards the estimated replacement
cost of £434,700 of the ductwork and pipework, etc, which had a life expectancy
of 20 years.
Mr Gaunt submits, therefore, that the
true nature of this part of the service charge was that it represented payments
on account of expenditure which the landlord expected to incur when it became
obliged to perform its clause 4 covenant to replace the air conditioning plant.
As that obligation was one which the landlord was only covenanting to perform
during the currency of the tenancies, it follows that the tenant’s obligation
to indemnify the landlord against such expected expenditure must necessarily be
coterminous with it. As the landlord did not have to discharge that obligation
during the currency of the tenancies, it therefore follows that the tenant is
entitled to be repaid the moneys it paid over the years on account of that
expected expenditure. Kato now holds that money and so is accountable to the
tenant for its return.
Mr Gaunt recognises that there is no
machinery in the leases dealing expressly with the mechanics for the repayment
for which he contends, but he submits that the machinery of clause 3(2)(e) is
sufficient to enable it to be made.
He acknowledges, I think, that clause
3(2)(e) is directed primarily at ironing out any differences between the
estimated quarterly service charge payments made in advance in any year and the
service charge actually payable for that year as disclosed by the year end
certificate. But he submits that the words ‘such adjustment’ in it are wide
enough to require the landlord’s account to reflect any such repayment as is
now claimed. Such claims will ordinarily only arise after the last year of the
term and he also points to the change in language in the latter part of the
paragraph from ‘any amount’ to ‘any balance’. He submits that this was
deliberate. He says that had the parties intended to confine clause 3(2)(e) to
reconciling any mere mismatching differences between the interim payments made
and the actual payments due in respect of any year, they would have used the
words ‘any such amount’ rather than ‘any balance’. He says that the change of
language reflects a wider intention.
If Mr Gaunt is wrong about the
construction of clause 3(2)(e), and it does not do the work he asks of it, then
he submits that a term must be implied into the leases entitling the tenant to
recover the relevant payments. Alternatively, he submits that the payments have
been made for a purpose which has not been fulfilled and that there has in
consequence been a total failure of consideration so that the tenant has a
claim in restitution entitling him to be repaid. As a final alternative, he
submits that the tenant is entitled to recover his payments on the basis that
they were impressed with a trust for a purpose which has failed.
Mr Gaunt advanced his argument very
attractively, but I do not accept it. I prefer the argument which Mr Nugee
advanced, equally attractively, that it is irrelevant that the landlord did not
spend the fund on replacing the air conditioning plant during the currency of
the tenancies and that, once the payments were made, they became the landlord’s
absolute property.
First of all, although I do not regard
these points as conclusive, it appears to me that Mr Gaunt’s interpretation
leads to somewhat improbable results. He conceded, for example, that, on his
argument, if the tenant’s leases were forfeited for breach of covenant, the
tenant would be entitled to have repaid to him all the prior, and as yet
unexpended, payments he had made towards the air conditioning replacement fund.
In theory, this could happen when the terms of the tenancies were well advanced
and at a time when the landlord was on the point of replacing the air
conditioning plant, but had not yet done so. Again, it also follows from the
argument that if the air conditioning plant was replaced in the last week of
the terms, so that the tenant would derive no practical benefit from the new
plant, he would have no claim for any repayment. By contrast, if it was
replaced during the following week, he could then claim a repayment in full,
leaving the landlord having to find from elsewhere the money required to
finance the replacement.
Examples of this sort suggest to me that
Mr Gaunt’s argument needs to be looked at with care. Having endeavoured to do
so, I conclude that it is in error in failing to make sufficient recognition of
the true nature of schedule 3, para 2 and the commercial realities underlying
it.
Those realities are that the tenant was
taking leases of the relevant parts of Bush House together with the benefit of
the use of plant forming part of it. The air conditioning plant had a life
expectancy which was not necessarily coterminous with the terms granted by the
leases and parts of it had a life expectancy exceeding them. The evidence is
that the system was installed in 1973, and that it included ductwork and
pipework with a life expectancy of some 20 years. The
would be known to have had such at the commencement of the leases, and it was at
least a possibility, if not a certainty, that it would not need to be replaced
until after their expiry. The useful economic life of such an asset is the
period over which its owner will derive economic benefits from its use.
Depreciation is the measure of the wearing out, consumption or other reduction
in such life and the purpose of the depreciation charge against income in the
financial statements of enterprises using such assets is to reflect that part
of the costs of the enterprise. Such a change does not reflect any outflow of
cash. But I agree with Mr Nugee that it is just as much a part of the overall
cost of the enterprise as its ordinary outgoings. The provision of the air
conditioning plant costs the landlord during each year of its useful life not
only the expense of servicing and running it, but also its annual depreciation.
In this case the plant was being provided for, and was used exclusively by, the
tenant. Part of the cost of its provision and use was its annual depreciation.
In my judgment, the words ‘by means of
depreciation allowance’ in schedule 3, para 2 show that the landlord had this
particular head of cost in mind. The sense which I derive from para 2, and in
particular from its last five words, is that one head of cost against which the
tenant was required to indemnify the landlord was the cost to the landlord of
the annual depreciation of the plant, the tenant’s payments for that purpose
being set aside to provide for the plant’s eventual replacement.
It follows that I consider that Mr
Gaunt’s contention that the payments are to be characterised as having simply
been made on account of future expenditure is incorrect. I, of course, accept
that they were intended to be, as they were, set aside so as to establish a
fund for future expenditure on replacing the plant. In my judgment, however,
the true nature of the tenant’s payments was that they were made by way of an
indemnity against the cost actually and irreversibly incurred by the landlord
during each year by virtue of the depreciation of the plant. On this analysis
there is no question of the payments being repayable to the tenant if the fund
is not expended during the currency of the tenancies on replacing the plant.
The tenant’s interest in the plant determines with the tenancies. But the
landlord’s does not. The landlord has in the meantime still incurred the cost
of its depreciation and the tenant has agreed to indemnify it against such cost
and has done so. In my view, it makes no commercial sense that, merely because
the landlord has not expended the tenant’s payments on replacement plant during
the currency of the tenancies, the landlord should have to reimburse the tenant
for his payments. It is still going to have to replace the plant at some time.
Mr Gaunt submitted that, if this
construction is right, difficulties arise. He asked rhetorically: if the
landlord spends during the term less on replacing the plant than the tenant has
contributed, can he keep the excess? And if the plant is not replaced during
the term, and the landlord extracts covenants from its new tenant to bear the
cost of any replacement plant, does it have to give credit for the fund
established with the previous tenant’s contributions?
I am not convinced that these questions
demonstrate any fundamental difficulties. The answer to the first may well be
that the landlord can keep the excess, but that will not necessarily produce an
unjust result. I see no reason to assume that the landlord is going to act
unfairly and unreasonably towards his tenant and, in my view, the landlord
would ordinarily be expected at least to give credit to the tenant for the
excess against future depreciation payments in respect of the new plant. As to
the second question, it will be for the new tenant and the landlord to agree
the terms of the new tenancy, which will be likely to depend on many factors.
If it can be foreseen that the plant will shortly need replacing at substantial
cost, the tenant is likely to want to know what provision has been made for its
replacement and will be unlikely to be willing to assume an obligation to bear
that cost if substantial provision has already been made for it. If, however,
he is required to assume such an obligation, then he is likely to seek
compensating advantages from the landlord with regard to other aspects of the
terms of the new lease.
The result is that I hold that the
tenant’s argument is incorrect. I find support for this conclusion in the
absence of any express provision in the leases dealing with the mechanics for
the return to the tenant of payments of the type which are in issue in this
case. It must have been in the contemplation of the parties that the tenant’s
service charge payments of this type might exceed any actual future expenditure
on new plant or that no part of them might be expended on new plant during the
currency of the tenancies. Yet there is no provision in the leases dealing with
the point. I am unconvinced that clause 3(2)(e) can do the necessary work. In
my view, that is concerned only to deal with the situation in which the
tenant’s payments on account during a particular year exceed the actual
expenditure for that year shown by the post-year certificate. I do not accept
that the words ‘any adjustment’ or ‘any balance’ have the considerable additional
significance which Mr Gaunt seeks to attach to them.
I do not suggest that this last
consideration is decisive. Had I concluded that, as a matter of construction,
the tenant ought in principle to be entitled to payments made in excess of the
actual expenditure on replacing plant, then I have little doubt that the court
would identify a means for enabling any just repayment to be made. However, I
regard the absence of any machinery in the leases dealing expressly with the
point as at least providing support for my preferred interpretation.
I accordingly answer questions 1 to 3 in
the summons in the negative.
Giving a further judgment on December 10
1996, RIMER J said: I gave judgment in this matter on October 25 1996.
On that occasion, Mr Gaunt QC was unable to be present in order to debate the
form of the order. Apart, therefore, from giving leave to the plaintiff to
appeal, I adjourned, to a date to be fixed, the argument on the form of the
order. That has now taken place. The essential issues between the plaintiff and
Kato in the action appear from my judgment which I will, for present purposes,
take as read.
Mr Nugee submits, and I did not
understand Mr Gaunt to dispute, that the effect of my judgment on questions 1
to 3 inclusive of the RSC Ord 14A summons was to reject all the alternative
claims pleaded by the plaintiff in paras 12 and 12A of the amended statement of
claim. As to para 12B, the issues arising out of that were reflected in
question 4 of the summons. It was also going to be Kato’s primary argument at
the previous hearing that question 4 should similarly be answered in the
negative. In the event, as I recorded at the beginning of my previous judgment,
counsel agreed that question 4 did not need to be answered. I do not recall
whether the precise basis of that agreement was explained to me, although I do
recall mention being made that para 12B raised what was regarded as a future
question, the futurity lying in the uncertainty as to what the replacement of
the air conditioning system would cost. It is, I think, relevant to record that
my own understanding of the position at the time the summons was argued was
that success by Kato on questions 1 to 3 of the summons would not necessarily
result in the dismissal of the action. Mr Gaunt says that that was also his
understanding. He says that he argued the case on the basis that even if he
lost on questions 1 to 3, the para 12B issue would still remain a live one. He
said that he did not intend to make any concession on that issue.
Mr Nugee, however, now submits that the
right order for me to make is to dismiss the action. He says that it follows
from my judgment that not only have the paras 12 and 12A claims failed, so also
must the para 12B claim be regarded as having failed. I need not examine that
submission in any close detail because Mr Gaunt now accepts that, whether or
not that consequence flows from my judgment, para 12B, as at present pleaded,
does not make a case on which the plaintiff could hope to succeed at trial.
First, Mr Gaunt concedes that the references in it to 53.95% are in error. The
point is that the air conditioning system serves the plaintiff’s part of Bush
House exclusively, and so the plaintiff was obliged to contribute 100%
of the relevant service charge payments. Second, even if the references to
53.95% are deleted and the paragraph is reformed into one in which the
plaintiff is claiming the excess of its contributions and accrued interest over
the actual cost of replacing the system, Mr Gaunt now accepts that, without more,
para 12B still would not disclose a cause of action which entitles the
plaintiff to recover the excess.
Absent therefore any application to amend
para 12B, it would, I think, necessarily follow that the right order for me now
to make would be to dismiss the action, although it is common ground that the
counterclaim would continue as a separate action in its own right.
Mr Gaunt does, however, now seek leave to
amend para 12B. The proposed amendment reads as follows:
12B Further, or in the alternative to paragraphs
12 and 12A hereof, if which is denied the third defendant is otherwise entitled
to the sum (1) the third defendant alleges that it now proposes to carry out
the work (2) the reasonable cost thereof is estimated to amount to no more than
£500,000 (3) by 1985, at the latest, a sufficient sum had been collected by the
third defendant and its predecessors to provide for the replacement of the air
conditioning in due course and, accordingly, the payments levied for that
purpose thereafter (hereinafter called the over-payments) were unnecessary and
unreasonable and moneys which the landlords were not entitled to charge under
the terms of the lease (4) in those circumstances the third defendant is
obliged to account to the plaintiff for the over-payments as money paid under a
mistake of fact, namely the belief that a sufficient provision had not already
been made.
That raises a brand new case based on the
contention that, by 1985, enough had been contributed by the plaintiff to fund
the replacement of the system and that all further payments made by him
thereafter were made in the mistaken belief that he had not yet paid enough to
fund such a replacement. The proposed new pleading thus advances a new cause of
action for money had and received to the plaintiff’s use, being money paid
under a mistake of fact.
Mr Nugee opposes the amendment on three
main grounds. First, while he rightly does not expect me to regard this as
conclusive, he is sceptical of the suggestion that the plaintiff, or his
relevant paying agent, ever addressed his mind when making the relevant
quarterly payments to the question of whether or not the totality of the
payments made in previous quarters had constituted a fund sufficient for the
replacement of the system. I have some sympathy with the scepticism, but I
cannot allow my sympathy to govern my decision on this application. The
proposed pleading represents what Mr Gaunt tells me are his instructions. If
the amendment is allowed, it will be a matter of evidence as to whether the
plaintiff can make good the factual allegation.
Second, Mr Nugee submits that the
application for the amendment is far too late. He says that the issue of the
RSC Ord 14A summons was made after leading counsel, Mr David Neuberger QC (as
he then was), had reviewed the case fully on behalf of the plaintiff and had
settled the form of the amended statement of claim. He says that Kato regarded
the summons as one which would resolve all issues between the parties arising
in the action and that in substance, if not in form, its hearing was the
equivalent of the trial of the action. The amendment application is now made at
a time when the action has been fought and lost. He says that it would be
unfair to Kato to subject it to the prejudice of having to go to a further trial
on the case proposed to be raised by the new para 12B. The issue proposed to be
raised would necessitate the calling of factual and expert evidence, and there
would necessarily be a delay before it could be tried. Mr Nugee referred me to Ketteman
v Hansel Properties Ltd [1987] AC 189* and, in particular, to Lord
Griffiths’ speech at p220 where he said:
*Editor’s note: Also reported at [1987] 1
EGLR 237
Furthermore, whatever may have been the
rule of conduct a hundred years ago, today it is not the practice invariably to
allow a defence which is wholly different from that pleaded to be raised by
amendment at the end of the trial even on terms that an adjournment is granted
and that the defendant pays all the costs thrown away. There is a clear
difference between allowing amendments to clarify the issues in dispute and
those that permit a distinct defence to be raised for the first time.
Whether an amendment should be granted is
a matter for the discretion of the trial judge and he should be guided in the
exercise of the discretion by his assessment of where justice lies. Many and
diverse factors will bear upon the exercise of this discretion. I do not think
it possible to enumerate them all or wise to attempt to do so. But justice
cannot always be measured in terms of money and in my view a judge is entitled
to weigh in the balance the strain the litigation imposes on litigants,
particularly if they are personal litigants rather than business corporations,
the anxieties occasioned by facing new issues, the raising of false hopes, and
the legitimate expectation that the trial will determine the issues one way or
the other. Furthermore to allow an amendment before a trial begins is quite
different from allowing it at the end of the trial to give an apparently
unsuccessful defendant an opportunity to renew the fights on an entirely
different defence.
Mr Nugee submits that the present
situation is essentially analogous to that in Ketteman, and he
emphasises Kato’s legitimate expectation that the resolution of the RSC Ord 14A
summons would finally resolve one way or the other all the issues arising in
the action. He also points out that Kato want to get on with the replacement of
the air conditioning system. They have been held up for some three years in
doing so, and they cannot embark on the programme until they know how much they
have in hand to spend. The plaintiff claims that it would not cost more than
£500,000 to replace the system. There appears to be some uncertainty as to
Kato’s estimate of the costs, but it is apparently substantially in excess of
that.
I, of course, have to take these matters
into account, and do so, in considering how to exercise my discretion. So far
as concerns what are said to have been Kato’s legitimate expectations that the
RSC Ord 14A decision would finally resolve all issues in the action one way or
the other, I think that I have to temper the weight of that point with the
recognition that, as I have related, the plaintiff did not apparently share
such expectations.
As regards the prejudice resulting from
the delay in being able to implement the replacement of the system, I accept
that that too is relevant prejudice, to which I must pay regard. I think,
however, Mr Gaunt is also right in saying that, if anyone is going to suffer
prejudice by such delay, it is the plaintiff rather than Kato because the
plaintiff is the current tenant of those parts of Bush House enjoying the
exclusive use of the current air conditioning system.
Third, Mr Nugee submits that the claim is
prima facie statute barred. The limitation period for claims for moneys
had and received is six years, so claims in respect of alleged overpayments
made in 1985 became statute barred in 1991. If I were to allow the amendments,
they would be treated as taking effect as from the date of the writ, which was
issued on June 28 1994. It would follow that Kato could plead the Limitation
Act 1980 in answer to those of the plaintiff’s new causes of action which had
accrued more than six years before then, so that it would have a good
limitation defence to claims in respect of overpayments allegedly made prior to
June 28 1988; but it would not be able to plead the Act in defence of claims in
respect of overpayments alleged to have been made between June 28 1988 and
September 29 1990; whereas if a new writ were now to be issued claiming those
overpayments, a limitation defence would be available to Kato in respect of
them.
Mr Gaunt seeks to overcome the limitation
argument in two ways. First, and this would enable him to go back at least to
June 28 1988, he relies on RSC Ord 20, rr 5(2) and (5), which read as follows:
(2) Where an application to the Court for
leave to make the amendment mentioned in paragraph (3), (4) or (5) is made
after any relevant period of limitation current at the date of issue of the
writ has expired, the Court may nevertheless grant such leave in the
circumstances mentioned in that paragraph if it thinks it just to do so.
…
(5) An amendment may be allowed under
paragraph (2) notwithstanding that the effect of the amendment will be to add
or substitute a new cause of action if the new cause of action arises out of
the same facts or substantially the same facts as a cause of action in respect
of which relief has already been claimed in the action by the party applying
for leave to make the amendment.
In my judgment, this case is not one
which can be brought within RSC Ord 20, r 5(5). The heart of the proposed new
case is that the alleged overpayments were made under a mistake of fact. No
such plea forms part of the plaintiff’s current case, and I consider that the
new pleading raises what is, in this new and essential respect, an entirely new
case. I do not accept that it can be said to arise out of the same or
substantially the same, facts as those pleaded in support of any of the
plaintiff’s existing causes of action; so I am not prepared to allow the
amendment under RSC Ord 20, r 5(2).
The other way Mr Gaunt puts it is, as I understand
it, that there was no relevant limitation period current at the date of the
writ at all. He relies on section 32 of the Limitation Act 1980. That reads:
(1) Subject to subsection (3) and 4A
below, where in the case of any action for which a period of limitation is
prescribed by this Act, either —
(a) the action is based upon the fraud of
the defendant; or
(b) any fact relevant to the plaintiff’s
right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the
consequences of a mistake; the period of limitation shall not begin to run
until the plaintiff has discovered the fraud, concealment or mistake (as the
case may be) or could with reasonable diligence have discovered it.
Mr Gaunt says that this case is within
section 32(1)(c). I do not, for my part, consider that that subparagraph can
help the plaintiff. The plaintiff’s proposed new case is that expert or other
evidence will enable him to show that the cost of replacing the system would be
no more than £X. If that evidence is available to him now, so also was like
information available to him on each quarter day in and after 1985 when he
claims he mistakenly made his service charge payments. Thus, with reasonable
diligence, he could have obtained all the advice he needed to inform himself as
to whether or not the totality of the previous contributions he had made were
sufficient to enable the system to be replaced. Accordingly, assuming that the
plaintiff did make any overpayment by reason of the mistake he alleges, he
could, with such diligence, have discovered it before he made it.
In these circumstances, I consider that
Kato has an accrued limitation defence to the plaintiff’s claims to recover its
alleged overpayments in so far as they were mistakenly made more than six years
ago. However, for reasons which I think will be apparent from what I have
earlier said, I have come to the conclusion that I ought, in principle, to
exercise my discretion to allow the plaintiff to amend para 12B so as to raise
a new case along the lines of Mr Gaunt’s draft. I have, in short, come to the
conclusion that the proposed amendment is one which can be made without
injustice to Kato since I consider that they can be compensated in costs. But,
for reasons which follow from what I have said on the limitation points, I will
only permit such an amendment in so far as it is confined to a claim in respect
of overpayments alleged to have been mistakenly made no earlier than six years
before the service of the proposed reamended statement of claim.
After further discussion, RIMER J said:
As regards costs, there is substantial agreement between both sides. Both Mr
Nugee and Mr Gaunt agree what the form of the order is going to be. There is no
issue that it will reflect the matters set out in para 7, subparagraphs (i) to
(iv) of Mr Nugee’s skeleton argument, which provide for a declaration embodying
the effect of the declarations which flow from my previous judgment, an order
that the plaintiff pays Kato’s costs of the RSC Ord 14A and the RSC Ord 14
summonses, the granting of leave to appeal and the adjournment of the summons
for interim payment which Kato had issued.
I think that, if there had not been the
question of the proposed amendment, it is probable that both sides could have
agreed a minute reflecting all that, which would have saved any need for
attendance here at all, and so would have saved today’s costs. In so far as
there is a difference between the parties, it relates to the application for
the amendment. It is agreed that the amendment should be made on the usual
terms as to costs, that is to say that the plaintiff should bear the costs of
and occasioned by the amendment. The only issue is as to today’s costs. Mr
Nugee submits that the plaintiff should pay Kato’s costs of today’s attendance.
Mr Gaunt submits that there should be no order as to such costs.
In my view, Mr Nugee is right. Mr Gaunt
has come here today seeking an indulgence in the way of an application for
leave to amend. The application has been opposed. The opposition has been
partially successful, and, by parity of reasoning, so has the application. The
net result is that Mr Gaunt has not achieved as much as he hoped to achieve. He
has, nevertheless, come here today seeking an indulgence. As it seems to me,
the fair order to make would be that he should pay the costs of this
application for leave to amend, that is to say, today’s costs as well as the
costs of and occasioned by the amendments. I will so order.
